The 2 Percent Population Pace Test
To get a better handle on how demographics will limit national economies in coming years, I studied population trends in the countries on my list of postwar growth miracles—the fifty-six cases in which a country sustained an average economic growth of at least 6 percent for at least a decade. I found that during these booms the average growth rate of the working-age population was 2.7 percent. In other words, a significant part of the growth in these miracle economies could be explained by the fact that more and more young people were reaching working age. This clear connection between a population explosion and an economic miracle has played out in dozens of cases, from Brazil in the 1960s and ’70s to Malaysia from the 1960s through the 1990s.
As for how fast the working-age population needs to grow to raise the likelihood of an economic boom, it turns out 2 percent is a good benchmark. In three out of four of the miracle economies, the working-age population grew at an average pace of at least 2 percent a year during the full duration of a decade-long boom.

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Today no country can expect a similar boost, not when commodity prices are falling and political unrest is spreading.
This does not bode well for the emerging world, where more and more countries face the prospect of weak or even negative population growth. Over the course of the 2010s, all the major emerging economies are projected to have working-age population growth rates below the 2 percent mark, including India, Brazil, Mexico, Indonesia, and Thailand. Already the working-age population is actively contracting in three large emerging countries: Poland, Russia, and most important, China. There the working-age population growth rate hovered under 2 percent as recently as 2003, then dropped steadily until it turned negative for the first time in 2015.
Population decline is now high on the list of reasons, alongside its heavy debts and excessive investments, to doubt that China can sustain rapid GDP growth.

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For a nation’s economic prospects, the key demographic question is: Is the talent pool growing? The first part of the rule for finding the answer is to look at the projected growth of the working-age population over the next five years, because workers (more than retirees or schoolchildren) are the drivers of growth. The second part of the rule is to look at what nations are doing to counteract slower population growth. One way is to try to inspire women to have more babies, an approach with a spotty record at best. The other is to attract adults—including retirees, women, and economic migrants—to enter or reenter the active labor force. The big winners will come from among those countries that are blessed with strong growth in the working-age population or are doing the best job of bringing fresh talent into the labor force.
The 2 Percent Population Pace Test
To get a better handle on how demographics will limit national economies in coming years, I studied population trends in the countries on my list of postwar growth miracles—the fifty-six cases in which a country sustained an average economic growth of at least 6 percent for at least a decade.

So, too, the structural reforms imposed on Greece and Spain and the other crisis countries were supposed to increase productivity.
Because working-age populations (ages 15 to 64) in different countries have grown at different rates—Japan’s working-age population has been shrinking at the rate of around 1 percent a year while the United States’ has been increasing at 0.7 percent a year, and Germany’s has been decreasing at 0.3 percent a year12—it is perhaps more meaningful to compare real (inflation-adjusted) growth per person of working-age GDP than just GDP. One expects Japan’s growth to be lower than that of the United States’, simply because there are fewer workers. If Japan’s growth per working-age population is higher, it tells us something important: it is either finding more jobs for those of working age or it is increasing their productivity.

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This likely changed, of course, as Greece became the main recipient of refugees from Syria and elsewhere in the last couple of years, though this is a different kind of migration altogether—refugees choose Greece as a gateway to Europe and not because it is the most attractive destination for settlement.
10 Greece’s working-age population as percentage of total population fell from 66.7 percent in 2007 to 64.6 percent in 2015. Thus, the share of the declining population that was of working-age population decreased by more than 2 percentage points. Even if the unemployment rate had been unchanged and even if productivity had remained the same, GDP on this account alone would have fallen by more than 4 percent, reducing the country’s ability to pay back its debts.
11 Government expenditure converted to real terms using GDP deflator using IMF data.
12 World Bank data.
13 Eurostat data.
14 And well below that of the much maligned Japan, whose real GDP per working age population exceeds by a considerable amount both Europe and the United States.

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If Japan’s growth per working-age population is higher, it tells us something important: it is either finding more jobs for those of working age or it is increasing their productivity.
The eurozone has not been doing well when viewed from this perspective—for the eurozone as a whole, GDP per working-age person has increased by just 0.6 percent during 2007–2015, while for non-eurozone European countries, there has been a 3.9 percent increase.13 The comparison with the United States looks even more unfavorable: while by 2011, US growth in GDP per working-age population had largely returned to precrisis levels, the eurozone area’s number was markedly below—in fact, well below not only that of the United States but of the world and high-income countries.14
In the crisis countries, performance has predictably been even worse. If there has been any increase in productivity, that effect has been overwhelmed by the increase in unemployment. In Greece, output per working-age person has decreased by about 23 percent since 2007.

Goldstone starts off reciting the usual numbers of people who will be over sixty in the developed world. The article contains statements like this one: “As workers born during the baby boom of 1945–1965 are retiring they are not being replaced by a new cohort of citizens of prime working age (15–59 years old). Industrialized countries are experiencing a drop in their working age populations.” Or this assertion, “By 2050, in other words, the entire working-age population will barely exceed the 60-andolder population.”
To be fair, Goldstone goes on to suggest that policy makers take advantage of the longevity bonus and make it easier for individuals to work beyond sixty. Still, the notion that the “prime working years” are fifteen to fifty-nine and that sixty and beyond are no longer the “working years” leads to great distortions.

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One sees these kinds of predictions littered throughout the popular press and the pundit ranks where the “aging of the boomers,” the “retirement of the boomers,” and various predictions of population bombs, silver tsunamis, gray quakes, and other longevity- and demography-born disasters are repeated as fact because at one time in history sixty-year-olds were a prime market for walkers. A stock in trade of this thinking is the dependency ratio, built on anachronistic ideas like a working-age population that’s fifteen to fifty-nine or sixty-five and notions of “retirement age” that simply no longer apply. Demographers likewise talk in grave tones about the “elder share,” the segment of a nation’s population over sixty, using this share as a marker of how decrepit the population is. It’s no surprise that these books and essays are usually overcome with lament for America’s lost youth, including much mourning about how the future will be far worse than our past, as we head over the hill as a nation.

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He goes on to show the obsolescence of much that’s accepted as hard reality by many economists and demographers today. When Social Security was enacted, Americans moving beyond sixty-five were considered “beyond the productive period,” based on mortality risk. Just as we’d never consider equating 1935 dollars with 2010 dollars, should we expect 1935 ages to mean the same thing as those same indicators three-quarters of a century later? We need to longevity-adjust the meaning of ideas like the working-age population, just as we inflation-adjust currencies, in Shoven’s compelling perspective.
Shoven’s Stanford colleague, Center on Longevity founder Laura Carstensen, registers a companion point: All those years that have been added to life spans haven’t simply been tacked onto the end. They have been contributed to the middle—mostly to the second half of life where health and capacity after fifty are being dramatically stretched.

Many developing countries will be experiencing a “youth bulge” in the coming decades, and the growth in working-age populations will contribute to greater migration pressure.
Growing Working-Age populations in Developing countries
In forecasting future population trends, the concept of the “demographic transition” can explain why the age distribution within nations and regions changes over time. The demographic transition is the movement of a country—over several decades—from a pattern of high mortality and high fertility to one of low mortality and low fertility. Death rates typically drop faster than birth rates (which may actually increase due to better maternal health),50 and as a result, countries beginning the transition experience a population bulge. The age distribution becomes younger at this first stage of the demographic transition, and the working-age population increases annually—with more people entering the workforce than are leaving it. 51
These population changes are linked to broader socio-economic processes of development and urbanization—which improve incomes and access to health care and education—that lead mortality rates to fall.

The pressure to migrate arises from the push and pull factors (whether economic, social, or political) that make migration attractive, whereas the propensity to migrate is related to individuals' ability and willingness to bear the costs of moving.18 Historical trends help to identify areas that produce migration pressure, and future forecasts illustrate how these areas will evolve in the coming half-century. We highlight six interrelated factors that can be expected to foster a growing supply of potential migrants: persistent intercountry inequality and wage disparities; economic growth in the poorest countries; rural displacement and urbanization; rising education standards in developing countries; growing working-age populations in developing countries; and environmental stress. These factors, in themselves, will not launch people over borders to seek their fortune in distant lands, primarily because migration is still heavily influenced by national regulatory regimes. Given the opportunity, however, more and more people will be prepared to assume the risks and costs of migration.
While we expect the future to be characterized by a growing supply of people looking to move, we do not subscribe to fear-mongering approaches that depict overwhelming poverty in developing countries leading to a “flood” of poor people moving to rich countries.

However, this is actually not how we define and measure unemployment in practice.
There are some people who are too young or too old to work. So we consider only the working-age population when we calculate unemployment. All countries exclude children from the working-age population, but the definition of children differs across countries; fifteen is the most frequently used threshold, but it could be as low as five (India and Nepal).10 Some countries also exclude old people from the working-age population; the most frequently used threshold ages are sixty-four and seventy-four, but it could be as low as sixty-three or as high as seventy-nine.
Even among those who belong to the working-age population, not everyone who is not working is counted as unemployed. Some of them, such as students or those who are engaged in unpaid household work or care work for their family or friends, may not want a paid job.

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Some of them, such as students or those who are engaged in unpaid household work or care work for their family or friends, may not want a paid job. In order to be classified as unemployed, the person should have been ‘actively seeking work’, which is defined as having applied for paid jobs in the recent past – usually in the preceding four weeks. When you subtract those who are not actively seeking work from your working-age population, you get the economically active population. Only those who are economically active (that is, actively seeking paid jobs) but are not working are counted as unemployed.
This definition of unemployment, known as the ILO definition, is used by all countries (with minor modifications), but is not without serious problems. One is that ‘working’ is defined rather generously as doing more than an hour’s paid work per week. Another is that, by requiring that people should have actively looked for work to be counted as unemployed, it excludes the so-called discouraged workers (people who have given up looking for work due to repeated failures in their job applications, even though they still want to work) from the unemployment statistics.11
REAL-LIFE NUMBERS
Unemployment rates in the rich countries have risen a lot since the Golden Age
During the Golden Age, unemployment rates in Japan and the Western European countries were 1–2 per cent, compared to 3–10 per cent typically found in the periods before that.

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In many poor countries, a lot of children below the threshold age work. Their employment is often not recognized in the official employment/unemployment statistics.
11. In order to deal with the difficulties created by discouraged workers, economists sometimes look at the labour force participation rate, which is the share of the economically active population (the employed and the officially unemployed) in the working-age population. A sudden fall in that rate is likely to indicate that there has been an increase in the number of discouraged workers, who are not counted as unemployed any more.
CHAPTER 11: LEVIATHAN OR THE PHILOSOPHER KING?: THE ROLE OF THE STATE
1. Some economists, including myself, go even further and argue that, in industries that require large capital investments for productivity growth (e.g., steel, automobile), ‘anti-competitive’ arrangements among oligopolistic firms – such as cartels – can be socially useful.

In 1995, 1.5 million individuals were incarcerated in US prisons, compared with 500,000 in 1980; it is estimated that 2.4 million will be incarcerated in 2000 (Freeman, 1996). This aspect of underemployment, entirely neglected in official unemployment statistics, is not a minor matter, since these 1.5 million prisoners represented 1.5 percent of the US working age population in 1995. In France, by comparison, the prison population was just 60,000, or 0.3 percent of the working age population. It would of course be simplistic to suggest that the growth of crime in the United States since 1970 can be explained entirely by the evolution of wage inequality. Clearly, however, it was more difficult to be a model proletarian in the United States in 1995 than it was in 1970, given that the wage of the tenth centile fell by nearly 50 percent compared with that of the ninetieth centile.

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Is it really possible to draw a clear distinction between the English-speaking countries, where rising income inequality is supposedly a matter of increasing wage inequality, and other countries, where it is supposedly a matter of unequal risk of unemployment? Official figures might seem to support this view: the 1996 unemployment rate was 5.6 percent in the United States and 7.5 percent (and rapidly declining) in the United Kingdom, compared with 10.3 percent in Germany, 12.1 percent in Italy, and 12.2 percent in France (where 3 million people were unemployed in a working-age population of around 25 million [OECD, 1996, A24]). High growth in the late 1990s significantly reduced unemployment everywhere but left the geographical variation intact: in 2000, the unemployment rate was 4 percent in the United States and 10 percent in France (OECD, 2000).
The problem with this type of comparison, however, is that the notion of unemployment is not an adequate measure of the phenomenon of underemployment.

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It is therefore tempting to conclude that underemployment is in fact as high in the United States as in the European countries where unemployment is high. This is misleading, however, since the phenomenon of hidden underemployment is unfortunately not limited to the United States. It takes other forms in Europe, less visible perhaps but no less significant. Consider, for example, the fact that only 67 percent of the working age population is classified as belonging to the active population in France in 1996, compared with 77 percent in the United States, 75 percent in the United Kingdom, and only 68 percent in Germany and 60 percent in Italy (OECD, 1996, A22). This indicator, known as the labor market participation rate, is highly imperfect because it mixes together a wide range of phenomena, such as the female participation rate and the percentage of early retirees, but it nevertheless points to a real problem.

Further, by the metric of prime-age male unemployment, the pace of recovery from the “Great Reces sion” looks to have been more rapid and dynamic than many recessions in the postwar era.
But the unemployment rate was created in an age when mass withdrawal of working-age men from the workforce was inconceivable. Consequently, it takes no account of the very group that has been growing most rapidly within America’s postwar male working-age population: a group that now vastly outnumbers those formally unemployed.
Yes, the unemployment rate still has its uses. Administrators, for example, still need to know how many unemployment insurance checks to mail out each month. But it no longer serves as a reliable predictor for the numbers or proportions of persons who are not working—or, for that matter, for those who are working. The relationship between the work rate and the unemployment rate for prime-age men has eroded over in the postwar era, and this erosion markedly accelerated after 1965.

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Near Full Employment, Some Slack Remains,” Bloomberg, April 7, 2016, http://www.bloomberg.com/news/articles/2016-04-07/yellen-says-u-s-close-to-full-employment-some-slack-remains.
9.Note that the workforce is officially defined as the sixteen-plus population (more or less is the age you legally can get out of school); historically it was the fourteen-plus population. In this study, I use three measures working age population: twenty-plus, twenty-to-sixty-four, and the “prime working” ages of twenty-five-to-fifty-four.
10.While the U.S. Great Depression is conventionally dated as lasting from 1929 to 1939, in part to concord with the eruption of World War II that ended any peacetime economic slumps besetting European powers, unemployment data suggest that the effects of the Depression continued on into 1940 and 1941—indeed almost to our entry into that same conflict.

Everyone who is going to reach the age of fifteen by then has already been born – and they are greatly outnumbered by the baby-boomers who are going to reach sixty-five (or die) over that period.557 That is true even in the UK, which has a better demographic profile than most.558 In the absence of migration, Eurostat projects that the EU’s working-age population will fall by 0.5 per cent a year between 2015 and 2020 and by 0.7 per cent a year between 2020 and 2030.
Barring a pandemic or other disaster, the number of Europeans aged sixty-five and over is set to soar as the baby boomers retire and people generally live longer. In the absence of migration, Eurostat projects that their numbers will leap from 87 million in 2010 to 122.7 million in 2030.559 By then, they would account for a quarter of the EU population, up from 17.4 per cent in 2010.560 Since, in the absence of migration, the working-age population is going to shrink while (barring a disaster) the number of over-65s is set to soar, society will change dramatically in all sorts of ways, from attitudes to risk to voting patterns.

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People might choose to work less because taxes on labour income are punitive – or more, in order to achieve their desired income. In any case, the lower taxes on working are, the less distorted people’s decisions will be.
A bigger issue is that far fewer people work in some European countries than elsewhere. For now, this divergence is not due to demography.93 The main problem is that a smaller share of the working-age population is employed. Some European countries do much better than America. In Iceland and Switzerland, the employment rate was just shy of 80 per cent in 2012, followed by Norway and the Netherlands, where three in four people of working age work. Then comes a cluster of northern European countries – Sweden, Germany and Denmark – in the low 70s. Britain is at 70.1 per cent, the US at 67.1 per cent.

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European governments also need to raise the official retirement age, with exceptions for people in particularly physically demanding work. This should start as soon as possible, so that baby boomers also participate. For example, the official retirement age could rise by three months each year until it reaches the age of seventy. So in Britain, where the retirement age is sixty-five in 2014, this would reach seventy by 2029.
In the absence of migration, the working-age population is set to shrink. Without reform, ever fewer workers will have to sustain ever more pensioners. Radical reforms to get more people into work could partly offset these demographic trends, especially in southern European countries where employment rates are low. In northern European countries where employment rates are generally higher, the biggest boost would come from raising people’s actual retirement age (see footnotes for detailed calculations).576
Foreign youth
While boosting employment and encouraging people to retire later would make a big difference, migration would also help smooth the adjustment in several ways.

China has put itself in this position because of its one-child-per-family policy adopted in 1978, enforced until recently with abortion and the murder of millions of girls. That drop in population growth beginning thirty-five years ago is affecting the adult workforce composition today. The results are summarized in a recent report produced by the IMF:
China is on the eve of a demographic shift that will have profound consequences on its economic and social landscape. Within a few years the working age population will reach a historical peak, and will then begin a precipitous decline. The core of this working age population, those aged 20–39 years, has already begun to shrink. With this, the vast supply of low-cost workers—a core engine of China’s growth model—will dissipate, with potentially far-reaching implications domestically and externally.
Importantly, when labor force participation levels off, technology is the only driver of growth. The United States also faces demographic headwinds due to declining birth rates, but it is still able to expand the labor force 1.5 percent per year, partly through immigration, and it retains the potential to grow even faster through its technological prowess.

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Although this is a difficult and painful adjustment, the shift is sustainable, and it leaves Europe well positioned to be a globally competitive manufacturing base and magnet for capital inflows.
The Economist, along with many others, has cited adverse demographics as a major hurdle in the way of more robust European growth. Europe does have a rapidly aging society (as do Russia, Japan, China, and other major economies). Over a twenty-year horizon, the demographics of working-age populations are rigid in a closed society, which can be a large determinant of economic outcomes, but this view ignores forms of flexibility even in a closed society.
A working-age population is not the same as a workforce. When unemployment is high, as it is in much of Europe, new entrants can come into the workforce at a much higher rate than population growth, assuming jobs are available. The pools of well-educated unemployed are so large in Europe today that demography places no short-term constraints on productive labor factor inputs.

In the background
In terms of influences on economic development that are not directly addressed by the policy focus on agriculture, manufacturing and finance in this book, the most important is probably demographics. The size and age profile of a country’s population has a huge impact on its developmental potential. Labour is an input into an economy – a form of ‘capital’ – just like money, and a large working-age population relative to the cohorts of children and retired people increases the possibilities for fast growth. Rapidly declining death rates – particularly for children – and rapidly rising working-age populations have been a big part of the east Asian developmental story since the Second World War. These demographic trends, largely the result of advances in medicine and sanitation, have facilitated unprecedented growth. The phenomenon is sometimes referred to as the ‘demographic dividend’. The flip side of this dividend is that it is followed by the faster ageing of populations – by which we really mean the increase of retired people relative to workers.

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The flip side of this dividend is that it is followed by the faster ageing of populations – by which we really mean the increase of retired people relative to workers. After a tipping point, workforces start to shrink quickly, and older people consume their savings, devouring what were previously funds for investment. Japan’s problems since the 1980s have been bound up with acute demographic challenges in an only recently matured industrial economy. In China, the very fast growth of the working-age population that accompanied economic take-off is peaking already, and the country’s demographic headwinds will slowly increase this decade.
Demographics are important. However, a certain demographic profile has been part and parcel of the developmental experience of all east Asian states. In this sense the demographic story is a given. The only attempt to manage demographics as an element of economic policy occurred in China, but this has not been a major determinant of that country’s performance.

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Then Deng Xiaoping and his successors put the brakes on the birth rate, which was already slowing, with an often brutally enforced policy to limit child-bearing. Yet despite the misery induced by these Brave New World-style interventions, China’s developmental performance has been shaped by the same policy choices in agriculture, manufacturing and finance that have made the difference elsewhere. In the end the size of your working-age population is still less important to your developmental progress than what you do with that population.
The other influence on development that is given only a background role in this book is education. Here, the reason is that the evidence of a positive correlation between total years of education and GDP growth is much weaker than most people imagine.11 The strongest evidence globally concerns primary schooling, but even with respect to that formative period of education when people learn basic literacy and numeracy skills there are states like South Korea and Taiwan that took off economically with educational capital that was well below average.

These increases present major challenges – China, famously, will be the first country to grow old before it grows rich – but they do not alter the underlying fact that the ageing process in the developed world is much more advanced – in fact, thirty years earlier – than in most other countries.5
An alternative approach is to consider the changing supply of workers (aged fifteen to sixty-five) by region over time. In 1950, the population of working age in the developed nations stood at 494 million out of a global total of 1.4 billion, a share of 33.8 per cent. In 2000, the working-age population in the developed nations had increased to 743 million but the global total had increased much more, reaching 3.7 billion, leaving the developed nation share down at 20.3 per cent. By 2050, the UN estimates the working-age population in the developed world will have declined to just 662 million, a share of only 12.4 per cent in a global total which, by then, may be as high as 5.3 billion, a reflection of continued population increases in the emerging world and a rapid population acceleration in the world’s most impoverished nations.

If one works for an hour mowing a lawn, makes a few dollars selling homemade wares on a street, or has a doctorate and works in a call centre, the ILO counts this as employment. In other words, part-time workers, informal workers and underemployed workers all count as employed. The ILO definition of unemployment also improves when people drop out of the labour force: a smaller workforce means lower unemployment. A more meaningful measure is therefore the level of employment among the working-age population, according to which the ILO estimates that over 40 per cent of the world’s population is not employed. ILO, Global Employment Trends 2014, p. 18. In a similar measure, they estimate that only half the global labour force is in waged or salaried work. ILO, World Employment and Social Outlook: The Changing Nature of Jobs (Geneva: International Labour Organization, 2015), p. 28. But these measures still overestimate the number of people employed, and so other measures have attempted to overcome these deficiencies.

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Gallup, for instance, defines ‘employment’ as formal work for thirty hours or more per week – and concludes that 74 per cent of the global labour force fails to meet this definition. State of the Global Workplace: Employee Engagement Insights for Business Leaders Worldwide, Gallup, 2013, pdf available at ihrim.org, p. 27. Another study, based on ILO data on the unemployed, vulnerably employed and economically inactive, estimates the surplus population at 61 per cent of the total working-age population (calculated from data by Neilson and Stubbs, ‘Relative Surplus Population, p. 444). The conclusion to draw from these alternative measures is simple: the global surplus population is massive, and in fact outnumbers the formal working class.
45.Frantz Fanon, The Wretched of the Earth, transl. Constance Farrington (London: Penguin Classics, 2001), Chapter 2; Patricia Connelly, Last Hired First Fired: Women and the Canadian Work Force (Toronto: The Women’s Press, 1978).
46.Cleaver here uses the term ‘Lumpen’ to refer to what we have called the ‘proletariat’ condition.

Unlikely to obtain employment anywhere, the
migrants in Fitchen’s study were attracted to their rural destinations
by cheap rental housing there, left behind by those seeking
employment elsewhere.
In Australia, Wulff and Bell (1997) have described the migration patterns of low-income groups, especially social security
recipients, using unpublished census data, finding these groups
contributing greatly to the redistribution of the working-age population around the country. For example, between one-third and
a half of the net outflow of population from Sydney and Melbourne between 1986 and 1991 was of households with annual
incomes of less than $16 000, and about one-quarter of those
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MOVING IN AND OUT OF DISADVANTAGE
leaving were unemployed (Wulff and Bell 1997, p. 33).

America, on the other hand, is creating the first universal nation, made up of all colors, races, and creeds, living and working together in considerable harmony.
Surprisingly, many Asian countries—with the exception of India—are in demographic situations similar to or even worse than Europe’s. The fertility rates in Japan, Taiwan, Korea, Hong Kong, and China* are well below the replacement level of 2.1 births per female, and estimates indicate that major East Asian nations will face a sizable reduction in their working-age population over the next half century. The working-age population in Japan has already peaked; in 2010, Japan had three million fewer workers than in 2005. Worker populations in China and Korea are also likely to peak within the next decade. Goldman Sachs predicts that China’s median age will rise from thirty-three in 2005 to forty-five in 2050, a remarkable graying of the population. By 2030, China may have nearly as many senior citizens sixty-five years of age or older as children under fifteen.

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Japan faces a large prospective worker shortage because it can neither take in enough immigrants nor allow its women to fully participate in the labor force.
The effects of an aging population are considerable. First, there is the pension burden—fewer workers supporting more gray-haired elders. Second, as the economist Benjamin Jones has shown, most innovative inventors—and the overwhelming majority of Nobel laureates—do their most important work between the ages of thirty and forty-four. A smaller working-age population, in other words, means fewer technological, scientific, and managerial advances. Third, as workers age, they go from being net savers to being net spenders, with dire ramifications for national saving and investment rates. For advanced industrial countries—which are already comfortable, satisfied, and less prone to work hard—bad demographics are a killer disease.
The native-born, white American population has the same low fertility rates as Europe’s.

If current trends don’t bend, Russia’s population will be about the size of Yemen’s by the year 2050.
In the north of India, the population is booming due to high fertility rates, but in the south, where most economic development is taking place, fertility is falling rapidly. In a further twist, fertility is highest in poorly educated rural areas and lowest in highly educated urban areas. In total, 25 percent of India’s working-age population has no education whatsoever. In 2030, a sixth of the country’s potential workforce could be totally uneducated. As for Japan, the fertility rate is approximately 35 percent below the necessary replacement level and this has huge implications for productivity and public debt. Western Europe is not quite in this position, but the region is expected to experience population stagnation, with Germany—the region’s economic powerhouse—experiencing population decline.

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The American model One solution is obviously to import foreign workers via immigration, but this has been problematic for some nations, especially Japan. As for the USA, it is almost unique among OECD (Organisation for Economic Co-operation and Development) nations in having a population that is expected to grow by 20 percent from 2010–2030. Moreover, the USA has a track record of successfully assimilating immigrants. As a result it’s likely to see a rise in the size of its working-age population and to witness strong economic growth over the longer term.
Of course, all these estimates could be wildly off the mark. Perhaps another great famine, global pandemic or a world war could kill off billions of people, or maybe people will suddenly start having much larger families for reasons of economic survival or for status. In theory, demographic forecasting is a relatively scientific field, but in reality it can be subject to the vagaries of the future just like anything else.

Birth rates are falling below replacement levels in many regions of the world – not only in Europe, where the decline began, but also in most of South America and the Caribbean, much of Asia including China and southern India, and even some countries in the Middle East and North Africa such as Lebanon, Morocco and Iran.
Ageing is an economic challenge because unless retirement ages are drastically increased so that older members of society can continue to contribute to the workforce (an economic imperative that has many economic benefits), the working-age population falls at the same time as the percentage of dependent elders increases. As the population ages and there are fewer young adults, purchases of big-ticket items such as homes, furniture, cars and appliances decrease. In addition, fewer people are likely to take entrepreneurial risks because ageing workers tend to preserve the assets they need to retire comfortably rather than set up new businesses.

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These habits and patterns may change of course, as ageing societies adapt, but the general trend is that an ageing world is destined to grow more slowly unless the technology revolution triggers major growth in productivity, defined simply as the ability to work smarter rather than harder.
The fourth industrial revolution provides us with the ability to live longer, healthier and more active lives. As we live in a society where more than a quarter of the children born today in advanced economies are expected to live to 100, we will have to rethink issues such the working age population, retirement and individual life-planning.16 The difficulty that many countries are showing in attempting to discuss these issues is just a further sign of how we are not prepared to adequately and proactively recognize the forces of change.
Productivity
Over the past decade, productivity around the world (whether measured as labour productivity or total-factor productivity (TFP)) has remained sluggish, despite the exponential growth in technological progress and investments in innovation.17 This most recent incarnation of the productivity paradox – the perceived failure of technological innovation to result in higher levels of productivity – is one of today’s great economic enigmas that predates the onset of the Great Recession, and for which there is no satisfactory explanation.

In Japan, the population share
of those at least sixty-five years of age climbed from 13 to 21 percent in the
past decade, and United Nations demographers expect it to reach 31 percent by 2030. The Japanese working-age population is already declining
and is projected to fall from eighty-four million in 2007 to sixty-nine million by 2030. Europe's working-age population is also anticipated to recede, though less than Japan's.
The changes projected for the United States are not as severe, but
nonetheless present daunting challenges. Over the next quarter century,
the annual growth rate of the working-age population in the United States
is anticipated to slow, from 1 percent today to about 0.3 percent by 2030.
At the same time, the percentage of the population that is over sixty-five
will rise markedly. Though the overall population is expected to continue
to age, much of the aging of the labor force has already occurred with the
aging of the baby-boom generation.

…

A German job recruitment executive told the Financial Times (November 28, 2006): "The
battle for workers has already begun, and given the demographic trends in
Germany and in parts of southern and eastern Europe, it is about to get a
lot worse."
This tectonic shift is truly a twenty-first-century problem. Retirement
is a relatively new phenomenon in human history; average life expectancy
a century ago for much of the developed world was only forty-six years.
Relatively few people survived long enough to experience retirement.
The ratio of the dependent elderly to the working-age population has
been rising in the industrialized world for at least 150 years. The pace of
increase slowed markedly with the birth of the baby-boom generation after
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T H E AGE OF T U R B U L E N C E
World War II. But dependency of the elderly will almost certainly rise more
rapidly as that generation reaches retirement age.

…

In the United States, Congress may pass, and the
president may sign, legislation that, for example, provides an entitlement,
upon retirement, to a specified level of health care. But who assures that
the hospitals, pharmaceutical companies, physicians, nurses, and medical
infrastructure generally will be in place to convert a paper promise into
valuable future medical services?
A simple test for any retirement system is whether it can assure the
availability of promised real resources to retirees without overly burdening
the working-age population. By that measure, America may be on a collision course with reality. The oldest baby boomers become eligible for Social Security in 2008. By 2030, according to UN projections, people
sixty-five years of age and older will account for more than 23 percent of
the adult population, compared with 16 percent today. This huge population shift will expose all our financial retirement systems to severe stress
and will require adjustments for which there are no historical precedents.

In this system plenty of blue-collar jobs were available to workers with little formal education. Today, most of the new jobs for workers with limited education and experience are in the service sector, which hires relatively more women. One study found that the U.S. created 27 clerical, sales, and service jobs per thousand of working-age population in the 1980s. During the same period, the country lost 16 production, transportation, and laborer jobs per thousand of working-age population. In another study the social scientists Robert Lerman and Martin Rein revealed that from 1989 to 1993, the period covering the economic downturn, social service industries (health, education, and welfare) added almost 3 million jobs, while 1.4 million jobs were lost in all other industries. The expanding job market in social services offset the recession-linked job loss in other industries.

…

The proportion of male workers in the prime of their life (between the ages of 22 and 58) who worked in a given decade full-time, year-round, in at least eight out of ten years declined from 79 percent during the 1970s to 71 percent in the 1980s. While the American economy saw a rapid expansion in high technology and services, especially advanced services, growth in blue-collar factory, transportation, and construction jobs, traditionally held by men, has not kept pace with the rise in the working-age population. These men are working less as a result.
The growth of a nonworking class of prime-age males along with a larger number of those who are often unemployed, who work part-time, or who work in temporary jobs is concentrated among the poorly educated, the school dropouts, and minorities. In the 1970s, two-thirds of prime-age male workers with less than a high school education worked full-time, year-round, in eight out of ten years.

The government owns less stock but still controls the company.
The way the Kremlin is dealing with perhaps the worst aging problem in the emerging world offers another example of how even good news has a way of disappointing in the end. Russia’s working-age population will fall by about 870,000 people per year between 2010 and 2015. That’s a loss of close to 1 percent of the working population each year, double the European average, and the only example of demographic decay among the largest emerging markets. In the same 2010–2015 period the working-age population in India will rise nearly 2 percent per year, and in China 0.5 percent (after which China’s labor force, too, will begin to decline).
The one clear solution to the graying-population problem is immigration—letting in more young families from abroad—but it’s a solution Russia resisted for nearly two decades after the fall of the Soviet Union.

…

How Unification Could Play Out in South Korea’s Favor
Despite the growing differences, Taiwan and South Korea still share certain similarities. Their basic growth paths have been strikingly similar for the past five decades. They both have rapidly aging populations, which threaten to undermine the prospects for an Asian century. The fertility rates of South Korea, Japan, and Taiwan rank 218th, 219th, and 220th in the world, respectively, all clustered around 1.2 children per woman, well below the replacement rate of 2.1. With working-age populations on the verge of rapidly shrinking, tensions between workers and retirees are bound to increase.
South Korea and Taiwan also share an unusual status as the richer part of divided nations, a factor that played no small role in their relentless focus on economic growth. At the end of World War II, South Korea was divided from North Korea, and Taiwan separated from mainland China. For years both have faced the perceived threat of invasion—reason enough to stay vigilant in pursuit of economic and military strength.

As if willed by Labour, manufacturing declined faster than during the Thatcher years, when Labour had passionately deplored deindustrialization. Manufacturing amounted to 20 per cent of the economy in 1997 but 12 per cent in 2007, its decline fostered by sterling appreciation during Labour’s first term. Fittingly in Labour’s economy, construction, estate agency and property rose from 12.6 to 16.2 per cent. By 2010 only one in eight of Coventry’s working-age population of 194,000 was in manufacturing, compared with over one in two in the 1970s.
Growth was to be the antidote to debt and deficit, Mandelson said at Labour’s spring conference in February 2010, and the future was bioscience, medicine, advanced manufacturing, precision engineering, creative industries and – a new undertaking – ‘this is not going to happen without active government working hand in hand with enterprise’.

…

In Boston, young easterners came to stay, their children attending schools – four out of ten children in some of the town’s reception classes were from migrant families. ‘They saved our maternity unit,’ observed Richard Austin, the Boston council leader.
Councils complained that the extra numbers failed to bring extra government grants to cover those services. Some areas were unaffected by migration – Merseyside and the North East, for example. Other areas were transformed – 60 per cent of the working-age population of the London Borough of Brent had been born abroad. The 2001 Census was a distant memory and its estimate that 4.9 million or 8.3 per cent of the total population of the UK were born overseas may never have been accurate anyway. When Boston protested at underestimates, the ONS said it recognized a total population for the area of 62,000, but the council put it nearer 75,000, taking its evidence from increased registration of migrants at GPs’ surgeries and schools.

Instead of having children, Italians are buying pets. So is everyone in the developed world.
How did Japan get itself into a seemingly permanent recession after the dazzling prosperity of the 1980s? Longman told a San Francisco audience:Japan boomed through the end of the 1980s, so long as declining fertility was still increasing the relative size of its working-age population. . . . Japan’s long recession began just as continuously falling fertility rates at last caused its working-age population to begin shrinking in relative size.
Because Japan welcomes no immigrants, it is facing the world’s worst elder-care crisis. At Global Business Network, we predict that Japan’s standard solution to labor problems will be applied. Highly sophisticated, lovable robots and robotic environments will take care of Japan’s elderly, and then the technology will spread to the rest of the developed world.

In these areas, the jobs that are on offer are often poorly paid, dull and insecure.
One of the important consequences of these wider labour market trends—the rise of
unemployment, the vanishing middle, the earnings squeeze, the spread of low pay and
the weakness of the labour market in many parts of Britain—has been a rise in
downward occupational and social mobility. The post-war era was a period of
improving pay and opportunity for most of the working-age population. As income
growth and job opportunities for middle and lower income groups has slowed, that
upward mobility has been petering out, a trend that has been fuelled during each of the
three recessions of the last thirty years.
Britain is riddled with examples of downward job mobility—of former skilled
factory workers cleaning cars, joiners working as airport baggage handlers, trained
draughtsmen and IT specialists forced into temporary work in retail and customer
services or taxi-driving, often with long gaps of unemployment in between.121 Those
most vulnerable to such downward mobility are those over 50 and include
professionals as well as the skilled working class.

…

For significant sections of
the workforce it has imposed a near-permanent lid on the ability to rise. It has also
fuelled the geographical concentration of work and unemployment.
In some towns such as Hartlepool, Knowsley, Blaenau Gwent and Glasgow, the
real level of unemployment stood at more than twice the national average even before
the onset of the recession. In May 2008, nine towns, headed by Liverpool and
Nottingham, had more than a fifth of the working age population in receipt of
benefits.130
Sinking pay has also meant a weakening skill base, a process that risks becoming
re-inforcing. A low wage economy dictates the type of jobs that are created. As skills
disappear, so do the jobs. One of the consequences has been that while some skilled
workers can’t find work, in other areas, Britain now has real skill shortages, often the
sort of skills that would once have been held by those in the middle.

First was the long-run decline in hours of work per week for production workers, which by 1920 had already declined from sixty to fifty-two hours per week. Second was the influence of New Deal legislation, both in reducing hours directly and also in empowering labor unions that fought for and achieved the eight-hour workday and forty-hour work week by the end of the 1930s. An unrelated factor was the baby boom of 1947 to 1964, which increased the child population (0–16) relative to the working-age population (16–64) and thus reduced the ratio of hours worked to the total population. The reverse feedback from productivity growth to shrinking hours reflects the standard view in labor economics that as real income rises, individuals choose not to spend all their extra income on market goods and services, but rather consume a portion of it in the form of extra leisure—that is to say, by working fewer hours.

…

The retirement of the baby boomers will reduce hours per person independently of any other cause over a long transition period extending from 2008 to 2034. There is more to the demographic headwind, however, than the retirement of the baby boomers. The labor force participation rate (L/N) fell from 66.0 percent in 2007 to 62.9 percent for the full year 2014 and further to 62.6 percent in June 2015. Because the working-age population is 250 million, the decline in L/N by 3.4 percentage points (66.0 minus 62.6) implies a loss of 8.5 million jobs, most of them permanently.
Economic research has concluded that about half the decline in the participation rate was caused by the retirement of the baby boomers and the rest by a decline in the participation of those younger than 55. Those who have stopped looking for jobs and have thus dropped out of the labor force consist of workers who have lost their jobs in an economic setting in which they do not expect to be employed again, and a sizeable fraction of them have been able to obtain Social Security disability benefits.48 To call attention to the plight of these victims of deindustrialization, in late July 2013, President Obama toured several Rust Belt cities that have lost most of their manufacturing jobs base.

…

Policy solutions include immigration, to raise the number of tax-paying workers, together with tax reforms that would raise revenue and improve tax equity. A carbon tax, desirable on environmental grounds to reduce carbon emissions, has the side benefit of generating substantial revenue to help alleviate the fiscal headwind.
Immigration
Reform of immigration can be accomplished in a way that raises the average skill level of the working-age population and that thus contributes to the growth of labor productivity. One avenue for reform would be to end the practice of denying residency to foreign-born graduates of U.S. universities, a “self-imposed brain drain.” A promising tool to promote high-skilled immigration and raise the average quality of the U.S. labor force would be one such as the Canadian point-based immigration system, in which a point calculator is used to rate each immigrant applicant based on his or her level of education, language skills, and previous employment experience, among other criteria.18 The definition of skills could be broad and could include blue-collar skills, many of which are currently in short supply in the U.S.

The surprising fact is that the social-welfare states have an even higher employment rate (number of workers as a share of the working-age population) than the free-market countries. The free-market countries in turn have a higher employment rate than the mixed economies. The key here is that the social-welfare states have very high rates of female labor-force participation. The social-welfare system ensures day care and schooling for the children, so mothers have the time and means to enter the labor market.
The social-welfare states have been successful in maintaining very high employment rates for two other reasons. First, social support for the working-age population has been tied to specific policies that require those receiving benefits to seek employment with the assistance of government programs.

When applied to actual GDP data, the results were mildly embarrassing for the theory, because studies revealed that the great majority of postwar GDP growth was “explained” by the “technical progress,” that is, by the one part of the theory that had no economic explanation. Technical progress was treated in this growth model as manna from heaven. Business investment created new capital to use in production. Labor grew by an increasing working-age population and, as the growth models became more refined, the increasing level of education and skill in the workforce. Both contributed to growth, but “technology” explained more.
These simple theories seemed to fit what was known about the recent experience of GDP growth around the world. The pattern of growth in the OEEC/OECD economies in the postwar decades clearly showed the dramatic catch-up by the devastated combatant countries and the relative decline in the United Kingdom (although it too grew at a rate that would later come to be regarded as a Golden Age phenomenon).

Indeed, the study goes on to point out that “Alternative evidence on entrepreneurship is available from the Household Survey of Entrepreneurship conducted by the Small Business Service. A regional breakdown of attitudes to entrepreneurship in 2005 suggests that the North East and North West are slightly less entrepreneurial than other English regions. Evidence from the Global Entrepreneurship Monitor survey for 2006 suggests that the northern regions have lower proportions of their working-age population engaged in business start-ups than the UK average”.
My instinctive assessment of public spending is that it is a very weak rod to encourage business activity, partly because of the reasons set out by the left-wing think tank but also because the spending tends to have political rather than economic objectives (especially in the UK – bizarrely, it seems to work better in some other countries where a degree of corruption seems to generate a higher degree of harmony between political and economic objectives!).

After all, says Jacoby, “if you’re going to be unemployed, it’s much better to be unemployed at home than in the United States. It’s usually warmer at home and less expensive to live, and you are likely to be surrounded by a network of supportive family and friends.”
Jacoby is spot-on, according to the economic data used to gauge an immigrant’s intentions. The labor force participation rate, which measures the percent of the working-age population that is employed or seeking employment, is the strongest indication that immigrants come here to work and not to idle. Among foreign nationals generally, labor participation rates are higher than that of natives (69 percent versus 66 percent in 2006) and jobless rates are lower (4.0 percent versus 4.7 percent in 2006). This disparity only increases with respect to Hispanic males, who boast the highest labor-participation rate of any group in the country.

An aging labor force will compel changes in this economic model and may make political rule more difficult.”46 Wang Feng further argues, “As the population ages, the momentum of negative growth will eventually predominate.”47
Figure 3.8 China’s Demographic Projections
Source: United Nations World Population Prospects (2015).
This is not only a future problem; it has arrived. According to China’s National Bureau of Statistics, the working-age population has already begun to shrink—from 941 million in 2011 to 916 million in 2014.48 Between 2016 and 2026 the number of workers aged twenty to twenty-nine will fall by nearly 25 percent from 200 million to 150 million; the drop will be even sharper for those aged twenty to twenty-four.49 By 2050 the labor force is estimated by McKinsey & Company to contract by 11 percent.50 These trends are going to have profound implications for China’s economy.

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Dream Hoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do About It
by
Richard V. Reeves

In fact, as figure 2-1 shows, only a very small proportion of U.S. adults—1 to 2 percent—define themselves as “upper class.” A significant minority—about one in seven—adopts the ‘upper middle class’ description. This is quite similar to the estimates of class size generated by most sociologists, who tend to define the upper middle class as one composed of professionals and managers, or around 15–20 percent of the working-age population.
These self-definitions are a useful starting point, providing some sense of how people see themselves on the class ladder. But for analytical purposes, we need a more objective, and measurable, yardstick. But which to choose? After all, I’ve been at pains to argue that class is made up of a subtle, shifting blend of economic, social, educational, and attitudinal factors.
Income provides the cleanest instrument with which to dissect the class distribution because it is easier to track over time and to compare between individuals and families (perhaps also because I work with a lot of economists).

As only 40 per
cent of young people attend secondary school, large swathes of the
population, often the poorest in society, lack the opportunity to get
ahead.84 Yet in spite of all these deﬁciencies, India’s economy will
grow consistently in the coming years.85
Building the Pyramid
There are 2.4 million people working in the UK with a science of tech
degree. That is a larger proportion of the working-age population
than in the US, Germany or Japan.86 Yet the strong results are not
translating into a mass movement. There is a column of talent rather
than a pyramid. The top performers are a large proportion of the total
number of students. For example, last year just over 75,000 students
took an A Level in maths, broadly the same as the total number of
undergraduates in maths and the physical sciences.87 If this strength
was used to its full potential, the country would be able to fulﬁl all
its requirements with thousands of engineers and computer experts.

The historical period that fits best with this view was the early phase of industrial modernity in Europe. In Britain, for instance, the number of people economically active in agriculture fell dramatically between 1780 and 1988, and from 50 per cent to 2.2 per cent of all paid employment. At the same time, labour productivity soared by a factor of 68, and there was a huge accompanying consolidation of first the industrial sector and then services, which allowed a growing working-age population to be integrated into the labour market. The history of paid employment in all of the early industrialized countries looks similar right up to the 1970s. In the United States, dramatic technological change in the twentieth century led to a sweeping reduction in the numbers engaged in agriculture, but the total number of jobs in the US economy shot up from approximately 27 million in 1900 to 124.5 million in 1993.

But before policy makers are forced to take action to tackle economic contraction, they will be faced by a much more serious problem: what to do about all those people who no longer have a source of income? This is the distribution problem, which is seen by many as the most severe problem raised by the economic singularity. Tackling it successfully will also solve the problem of economic contraction, so we can move right along.
5.2 – Distribution
At the height of the Great Depression in the early 1930s, unemployment reached 25% of the working-age population.[ccxciv] Social security arrangements were primitive then, and developed societies were much poorer than they are today, so that level of joblessness was much harder on people than it is today, when parts of Europe have returned to similar levels overall,[ccxcv] with youth unemployment hitting 50% in some places.[ccxcvi]
The worst levels of unemployment in developed countries today are found in Mediterranean countries like Greece and Spain, where family networks remain strong enough that sons and daughters can be supported for months or even years by fathers and mothers – and vice versa.

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The End of Traffic and the Future of Transport: Second Edition
by
David Levinson,
Kevin Krizek

, according to a 2012 survey by Zipcar.51 The degree to which this is making a virtue of necessity — perhaps Millennials cannot afford cars and fuel as easily as older, more well-situated, generations, and so choose to embrace their relative poverty — is unclear, though demographics, attitudes, and other external factors all play a role.52 53
Changing Nature of Work
The workforce in the US has continued its drop as technology-enabled productivity reduces the economic value of older and unskilled workers. While the total size of the workforce is at this writing higher than it was at the depth of the Great Recession, a smaller share of the working age population works today.54 Fewer people are traveling for work, and fewer discretionary trips are made by both workers nervous about spending money and the unemployed who have little or no money to spend. Starting in 2008 in the US, unemployment increased sharply, and though it has since declined, employment participation rates remain much lower as shown in Figure 3.2.55 Demographics are also part of this.

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The Complacent Class: The Self-Defeating Quest for the American Dream
by
Tyler Cowen

Innovation thus becomes something more and more foreign to most American workers, embedded in tech devices but not something that most directly observe and participate in. Furthermore, virtually all analysts expect the percentage of the workforce employed in manufacturing to decline, further insulating American workers from direct experience of significant economic dynamism.16
If we adjust for increases in the American working-age population, the United States creates 25 percent fewer triadic patents per person than it did in 1999.17 (A triadic patent is one filed in the United States, Europe, and Japan, and tends to be a relatively serious patent in terms of potential scope.) This measured decline comes in an age where an increasing number of trivial, ridiculous, or “trolling” patents are granted by an out-of-control patenting process; one-click shopping, however fun and easy it may be to do, should not be receiving patent protection.

To put it, well, a little bluntly, it took some time for people to realize that fewer babies were dying. Only then, David says, did people adjust toward lower fertility. “And the children who had unexpectedly survived formed a ‘boom generation.’”
This generation created a large number of young, enterprising workers, who themselves had fewer children and therefore few dependants—in fact East Asia’s working-age population at this time grew nearly four times faster than its dependent population. The economies in the region as a result had to spend a lower percentage of their incomes on the social costs of a dependent population. Lower costs meant that this generation could save more—we have seen this in India, where a larger working population has helped push the country’s savings rate as a proportion of GDP to 34 percent in 2008, and it is set to rise even higher to 40 percent by 2015.

…

There was a rapid rise in the proportion of working-age to non-working-age people in the country from 1970, and by 2010 the number of working people will be two and a half times that of dependants.
China’s birth control policies have thus created an especially fast-paced demographic shift in the country, a steep slope all the way down. A dividend that took a century to complete its arc in other countries has taken less than forty years here, and dependency is now set to explode. After 2010 China’s working-age population will start falling. The country “is becoming gray before it has become rich”—by 2040, the world’s second largest population after India will be Chinese pensioners, more than 400 million people!22
Across the border in India, however, there was a far more languorous shift. India’s politics ensured that its coercive family planning program failed spectacularly, and since the 1970s the demographic curves of these two once similar countries diverged rapidly.

But with better living conditions in the West, the Soviet ‘zone’ kept haemorrhaging people. In 1952 at Stalin’s behest, the East Germans built a fortified fence along the border with West Germany and equipped it with watchtowers, armed guards, dogs and eventually automatically triggered machine guns. But there was still nothing to stop people wandering into the Western sectors of Berlin and not coming back. By 1960 the working-age population of East Germany had dropped from seventy to sixty per cent of the total. Before long it would be empty of all but geriatrics and the disabled. People denied a genuine vote at the ballot box were voting with their feet.
On June 15th, 1961 Walter Ulbricht, the general secretary of the East German Communist Party (officially the Socialist Unity Party since a forced merger with the Social Democrats in 1946) gave a speech in which he famously said: ‘Niemand hat die Absicht, eine Mauer zu errichten.

In a comparative assessment of child wellbeing in
21 industrial nations, the US ranked 21st and last in terms of child
health and safety, far behind much poorer nations like Greece, Hungary
or the Czech Republic (UNICEF 2007). A higher proportion of the
population lives in absolute poverty than in many European countries
and in Canada – absolute poverty being deﬁned for all countries as
40 percent of the median income of a US citizen (Smeeding 2005).
The prisoner to population ratio in the US is ﬁve to ten times as high
as it is in Europe. A staggering 2.3 percent of the male working age
population was in jail in 2004 (Schmitt and Zipperer 2006). Until 2008,
the numbers kept going up (PEW Center on the States 2008).
Due to the lack of prominence given to that sort of statistics, which
stand deep in the shadow of GDP, modern conventional economists
on both sides of the Atlantic can sell the US as the great example to be
emulated, despite its shortcomings. It was not coincidence or luck that led
to statistical practices so favorable to the world’s leading nation.

Kinder Morgan press release, “Kinder Morgan to purchase El Paso for approximately $38 billion,” 16 October 2011.
10. CNPC press release, “CNPC and Cupet sign expanded oil cooperative framework agreement,” 8 June 2011.
11. Rosen, Daniel H. & Hanemann, Thilo, “An American Open Door? Maximising the Benefits of Chinese Direct Investment,” Asia Society and Woodrow Wilson Centre for Scholars, May 2011.
CHAPTER 12
Japan after the Deluge
When one looks at GDP growth to working age population (defined as population aged 20–60), one gets a surprising result: Japan has actually done better than the U.S. or most European countries over the last decade.
—Daniel Gros, director of the Centre for European Policy Studies, January 6, 2011
Japan may be softly receding into nonimportance in the eyes of the more strident backers of Chinese or Indian twenty-first-century economic supremacy, but its global influence remains significant.

That means that more than four out of every five jobs created in Britain since 1997 have gone to foreign-born workers.
But this fails to take into account the fact that the British population is actually growing very slowly. There are problems with the figures available, not least because some foreign-born workers will now be British citizens, but they do give us a general picture. The British-born population of working age has only gone up by 348,000 since 1997, while the non-British born working-age population has risen by 2.4 million. Nearly a million Britons have left the country since then, and there are a staggering 5.6 million Britons living abroad: it is often for- gotten that migration is a two-way process. The bottom line is that the number of jobs going to British-born workers has gone up more than the British-born working population has increased. Less than three quarters of non-Britons have had any luck getting a job--at least, a job that found its way into the official statistics.'

Labour’s then Business Secretary Peter Mandelson had summed up the party’s strategy when he announced it was ‘intensely relaxed about people becoming filthy rich as long as they pay their taxes’; his Cabinet colleague Geoff Hoon is said to have told Labour MPs worried about the decline of shipbuilding that: ‘metal bashing is no longer a vital national asset’. Under Labour, Britain lost 1.3 million manufacturing jobs.
But this was social democracy. There had to be a palliative. The scale and persistence of poverty in Britain prompted Labour to extend the benefit system into the lives of those at work, in the form of tax credits. As a result, by 2010, 9.2 million adults out of a working-age population of 37 million were receiving state tax credits, while 5.4 million people were dependent on out-of-work benefits.13 By the end of the Labour government, former Labour minister Alan Milburn would admit: ‘We still live in a country where, invariably, if you’re born poor, you die poor, just as if you go to a low-achieving school, you tend to end up in a low-achieving job.’14
Redistribution through welfare was never overtly sold as compensation for the destruction of the ‘old’ working-class lifestyle, but that’s how it was widely understood.

These are labour market realities in emerging market economies. Although
campaigns and international agencies could do more to rectify them, they
will continue. However, most relevant for understanding the shaping of the
global precariat are developments in the economy that is rapidly becoming the
world’s largest.
The Chinese state has shaped a denizen labour force unlike anything else
ever created. It has a working-age population of 977 million, which will
rise to 993 million by 2015. Some 200 million are rural migrants lured to
the new industrial workshops where Chinese and foreign contractors act as
intermediaries of household-name multinational corporations from all over
the world. These migrants are the engine of the global precariat, denizens in
their own country. Because they are unable to obtain the hukou residence
permit, they are forced to live and work precariously, denied the rights of urban
natives.

Often this is the kind of ‘work’ that is far better done by neighbours than by professionals.
But the attitude of conventional economics to this unmarketable, unwaged work
is corrosive. Once it drops out of the conventional economic system, it becomes invisible to policy makers, unless it can be sold and commodified. It also leads to a
situation where the government believes that ‘full employment’ – or 80 per cent of the
working age population in work – is a valuable objective, when their voluntary work
or their work as parents might actually be more valuable to the neighbourhood.
There are costs – social and economic – of everyone being at work.20 It would
mean, for example, that with no one at home except the frail and elderly, there is a
gap left among those who socialize our children, look after older people, prevent
crime and provide the human face of our neighbourhoods and communities.

By 1940 roughly a quarter of working-age Americans had at least a secondary school education and around 5 per cent had at least a bachelor’s degree; rates were higher for the younger cohorts.8
Those figures rose steadily over the next half-century; now nearly 90 per cent of working-age Americans have at least a secondary education and 41 per cent have a bachelor’s degree or more. Most other rich countries do about as well; about 39 per cent of Britons have a bachelor’s degree or better, as do 26 per cent of Germans and 46 per cent of Japanese (The average among OECD countries is about 30 per cent of the working-age population).9 Humanity spent millennia figuring out ways to augment its physical strength, through wheels and pulleys and animal-power and steam and electricity, but, in the space of just over a century, humanity suddenly mobilized an enormous share of its cognitive strength.
* * *
Rising skill levels enabled rapid economic growth; the second industrial revolution, built on technologies such as electricity, chemistry and the car, couldn’t have unfolded as it did without a growing pool of skilled labour.

Argentina was a major outperformer between 1870 and the
outbreak of the First World War, thanks largely to the free-­trade
instincts of the late nineteenth-­century British Empire, new scientific advances and the mass migration of people in the late nineteenth century. It may have been a long way away from Europe and
the US but Argentina was able to take full advantage of the Royal
Navy’s commitment to keep international sea lanes open. New
refrigerator technologies – and faster ships – meant its beef could be
14
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Taking Progress for Granted
exported to destinations many thousands of miles away. Its working
age population grew rapidly, a reflection of the Belle Époque mass
migration from Europe – particularly from southern Europe – that
led to equally dramatic demographic changes in the US, Canada and
Australia. The growth of international financial markets, meanwhile,
led to huge improvements in Argentina’s capital stock.
After the First World War, Argentina, alongside Australia and
Canada, lost out. Impoverished Britain could no longer easily keep
its empire afloat.

No matter how you rearrange the
financing, whether lower pensions, higher contributions or saving, or a different private-public mix, the underlying demographic equation is unchanged.
In economic terms the developed countries will require a shrinking active
population to pay for a growing dependent population.
Sticking with the economics, the most direct solution would be to in-
The Weightless World
162
crease the working-age population: immigration. Some countries have long
enjoyed the benefit of immigration. America was built on it. Germany has
welcomed gästarbeiter when suffering labour shortages and more than done
its duty by refugees. Even the UK, with a tradition of petty hostility to foreigners, has grudgingly permitted some waves of official immigration and is
currently turning a blind eye to unofficial immigration from eastern Europe.

Its study shows that mortality sharply decreased in China during the Maoist years, “mainly a result of economic development and improvements in education and health services, especially the public hygiene movement that resulted in a sharp drop in mortality from infectious diseases.” But this progress ended with the initiation of capitalist reforms thirty years ago, and the death rate has since increased.
Furthermore, China’s recent economic growth has relied substantially on a “demographic bonus,” a very large working-age population. “But the window for harvesting this bonus may close soon,” with a “profound impact on development.… Excess cheap labor supply, which is one of the major factors driving China’s economic miracle, will no longer be available.”11
Demography is only one of many serious problems ahead. And for India, the problems are even more severe.
Not all prominent voices foresee American decline. Among international media, there is none more serious and responsible than the Financial Times.

Canada provides an instance in which denial of a tradeoff between inflation and unemployment not only mattered but mattered greatly. The U.S. economy was roaring in the 1990s. But up north our neighbors were experiencing the “Great Canadian Slump,” as it was named by the distinguished Canadian economist Pierre Fortin.17 In 1996 Fortin compared this slump to that seen in the Great Depression of the 1930s. His measure of the two recessions was the cumulative decline from peak of the employed fraction of the working-age population. As of 1996 the Canadian economy had already suffered 30% of the cumulative decline seen in the Great Depression.18 The Depression was not all that much worse, said Fortin in 1996. It had been deeper, and it had lasted longer. He could not have known then that it would take four more years for the economy to recover.
Where does Fortin place the blame? He makes a long list of all the possible causes of the recession, such as trade, fiscal policy, minimum wages, and restrictive monetary policy.

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Rethinking the Economics of Land and Housing
by
Josh Ryan-Collins,
Toby Lloyd,
Laurie Macfarlane,
John Muellbauer

As shown in Figure 5.2, mortgage debt outstanding has increased from around 30% of real disposable income in 1987 to almost 100%, helping to drive up average house prices from four times disposable income per household to ten times. This of course disguises large regional variations – in more desirable areas such as London and the South East the ratio is up to twenty times (ONS, 2015c). Recent research shows that when housing costs (including mortgage debt and rents) are included in an assessment of changing living standards since 2002, over half of UK households across the working age population have seen falling or flat living standards (Clarke et al., 2016).
Figure 5.2 House prices and mortgage debt compared to income in the UK (source: ONS, Nationwide and Bank of England; data de‹ated using 2010 prices)
The impact of rising housing costs is not distributed equally across populations of course. In 2013, 1.17 million households had mortgage debts amounting to more than 4.5 times their disposable income – representing nearly one in seven (13.2%) households with mortgages (ONS, 2015a, p. 1).

A handwritten contract between two people in Tanzania may be affordable and enforceable, but it is little help if the debtor wishes to start an export business supplying cut flowers to a London-based supermarket.
Of course, it will not all be easy or smooth, but I refuse to be pessimistic about Africa when such an opportunity is available at a few strokes of a pen and when the evidence of entrepreneurial vitality in the extralegal sector is so strong. Besides, as its population growth rates fall, Africa is about to reap a ‘demographic dividend’ when its working-age population is large relative to both the dependent elderly and the dependent young: such a demographic bonanza gave Asia perhaps one third of its miracle of growth. The key policies for Africa are to abolish Europe’s and America’s farm subsidies, quotas and import tariffs, formalise and simplify the laws that govern business, undermine tyrants and above all encourage the growth of free-trading cities.

.† As it is, the fiscal cost of paying for the credit-crunch bailouts of 2008 and 2009 is expected to consume between 2 and 4 percent of the GDP in Britain and the United States for more than a decade. So, while immigration is not a mandatory solution to labor shortages, the combination of cash-starved governments and higher demographic costs will make it the least painful and most voter-friendly solution.
According to a 2009 study by the University of Southern California’s Marshall School of Business, the United States will require 35 million more workers than its working-age population can provide by 2030, Japan another 17 million by 2050, the European Union 80 million by 2050. Canada, even if it continues to take in 250,000 to 300,000 immigrants a year, will be short a million workers by the end of this decade.9 Even the high levels of unemployment that struck the West after the 2008 credit crisis only temporarily mitigated this long-term demographic problem. During the worst months of the downturn, there were substantial labor shortages in many countries.

Religious leaders who defied the orthodoxy of the European-run churches faced the same fate: The prophet Simon Kimbangu died after thirty years in prison for his anticolonial rhetoric.
Under Mobutu, the price of resistance was so great that few ever dared to stand up and be counted for fear of being chopped down. Resistance to dictatorship in other countries has been most successful when it can call on strong, well-organized structures of like-minded supporters, such as labor unions, churches, or student groups. In the Congo, where in any case only 4 percent of the working-age population had jobs in the formal sector, there were few labor unions to speak of. In the early 1990s, fewer than 100,000 students in higher education were dispersed among dozens of universities and training centers across the country. Mobutu had tamed these institutions, consolidating all labor and student unions and forcefully integrating them into his ruling party. The country’s biggest institute of higher learning, Lovanium University, previously run by the Catholic Church, was nationalized along with several Protestant universities.

While population projections even in the medium term are a particularly tricky proposition (and the projections change rapidly from year to year), the hope is that the global population will stabilise during this century and peak at no more than 12 billion or so (perhaps as low as 10 billion) by the end of the century and thereafter achieve a steady state of zero growth. Clearly this is an important issue in relation to the dynamics of capital accumulation. In the United States, for example, job creation since 2008 has not kept pace with the expansion of the labour force. The falling unemployment rate reflects a shrinkage in the proportion of the working-age population seeking to participate in the labour force. But whatever happens, it is pretty clear that capital accumulation in the long-term future can rely less and less upon demographic growth to sustain or impel its compound growth and that the dynamics of production, consumption and realisation of capital will have to adjust to these new demographic circumstances. When this might happen is hard to say, but most estimates suggest that the vast increase in the global wage labour force that occurred after 1980 or so will be hard to replicate once it exhausts itself after 2030 or so.

Between now and the year 2010, the
developing world is expected to add more than 700 million men and
women to its labor force-a working population that is larger than the
entire labor force of the industrial world in 1990. The regional figures
are equally striking. In the next thirty years the labor force of Mexico,
Central America, and the Caribbean is expected to grow by 52 million,
or twice the number of workers as currently exist in Mexico alone. In
Africa, 323 million new workers will enter the labor force over the next
three decades-a working-age population larger than the current
labor force of Europe. 43
Worldwide, more than a billion jobs will have to be created over
the next ten years to provide an income for all the new job entrants
The Fate of Nations
207
in both developing and developed nations. 44 With new information
and telecommunication technologies, robotics, and automation fast
eliminating jobs in every industry and sector, the likelihood of finding enough work for the hundreds of millions of new job entrants appears slim.

And so, averaged out over thirty or forty years, Rothstein averred, “Wages have gone way, way down. So thinking the solution is to get more people into that labor market, that just doesn’t add up.”
For sure, the Earned Income Tax Credit could push individuals into employment and help a certain number of individuals navigate their way out of poverty, but what it couldn’t do was raise the overall well-being of the entire working-age population. While EITC recipients—especially single mothers at the bottom of the income pyramid—still benefit, despite the driving down of wages, because of the additional dollars sent their way by the government, individuals not eligible for the tax credit actually end up worse off than they would have been without the program in place. The combination of more people competing for their jobs and employers using the tax credit as an excuse to drive down wages has proven disastrous for this group of people.

The offices of Chief Judge and president of the States (the legislature) are combined in the post of the island’s Bailiff, an appointment made by the British Crown, which means no clear distinction exists between the legislature and judiciary. Jersey’s sole newspaper, the Jersey Evening Post, was for many years controlled by the island’s most senior politician. There are no universities, research centers, or think tanks. Approximately one quarter of the working-age population is directly employed in the island’s offshore finance center, and most of the other residents depend on its revenues circulating through the local economy. In such conditions there is little scope for sustained critical scrutiny of what the policy makers are up to. This absence of the checks and balances required of a democratic state creates an ideal environment for incompetence and corruption, especially on a small island with a deeply embedded culture of conformism and secrecy.

The personal saving rate (savings as a share of disposable income) rose from about 2.5 percent in 2006–2007 to about 5.25 percent in 2008–2010. What is saved, of course, is not spent. Until 2011, battered consumers held back the recovery.
As we have noted several times, the recession took a terrible toll on jobs. Payroll employment did not bottom out until February 2010. When it did, America had 8.8 million fewer jobs than at the January 2008 peak—even though the working-age population had grown in the interim. These massive job losses shattered millions of families’ incomes, not to mention their lives. And on top of this, American taxpayers were asked to bear the costs of bailing out the very financial system that had gotten them into this mess. It didn’t seem fair. It wasn’t.
The Punishment Didn’t Fit the Crime
While many of the victims were innocent, the perpetrators of the numerous frauds and near frauds were not.

Segalman, a professor of sociology at California State University, Northridge, points out that transgenerational welfare poverty, which twenty years ago was only 5 percent of welfare recipients, now comprises 20 percent, and on the basis of statistics in Los Angeles, he predicts that this element of permanent dependency will reach 40 percent in ten years.
13 This was predicted in Alan Sweezy, “The Challenge of Social Security Financing,” ZPG National Reporter (June–July 1978). Sweezy quotes Census Bureau projections that show the proportion of the population 65 and over rising by nearly 80 percent between 1976 and 2030, while the working-age population proportion declines slightly.
14 “Hispanics Fastest Growing Minority in U.S.,” New York Times, February 18, 1979, p. 16.
15 Tom Bethell, “Against Bilingual Education,” Harper’s, vol. 258, no. 1545 (February 1979), p. 30.
16 Vincent H. Whitney, “Fertility Trends and Child Allowances” in Eveline M. Burns, ed., Children’s Allowances and the Economic Welfare of Children , the Report of a Conference (New York: Citizens Committee for Children of New York, 1978), pp. 123–139 and Nicole Questiaux, “Family Allowances in France,” ibid., pp. 76–89.

Once a Florida of sorts for mighty Russia, a coveted retirement destination for Communist Party apparatchiks, it had become the poorest country in Europe. After the breakup of the Soviet Union in 1991, former republics such as Estonia embraced Western-style reforms and thrived. Moldova, however, never managed to shake off Communist influence. After flirtations with democratic reforms in the 1990s, the party was voted back into power in 2001. Over the next decade, the economy imploded, and a quarter of the working age population left in search of work abroad. Twenty years ago Moldova was wealthier than Romania, with which it shares a language and culture. By 2010, when I visited, its per capita GDP was just a quarter of its booming neighbor’s.
The previous spring, the country had reached a breaking point. After the Communists narrowly won the April 2009 election in a suspiciously strong showing, outrage turned to violence in the streets.

Several, but certainly not all, of its countries enjoy resource wealth (40 percent of the world’s gold and 90 percent of its platinum are in Africa), which, in the hands of good governments, could be invested in public infrastructure and skills. And good government is better understood: citizens know their rights much better and are holding those in power accountable with ever-rising frequency.98 Africa is also blessed with a looming demographic dividend. Its working-age population will balloon from 500 million people now to over 1.1 billion by 2040.99 If local governments can learn how to foster neighborhoods instead of slums, and if national governments can better integrate their too-small economies and build better institutions, Africans might banish extreme poverty from their midst before mid-century.
The second reason why the health, wealth and education achievements of this New Renaissance outweigh the shortcomings is their breadth.

In practice, that means the flows of those Chinese migrant workers from Sichuan and other places to the coastal factories have sustainably increased the capacity of China’s economy. It was these migrant workers who were the principal reason for China’s giant surpluses. China’s increasing wealth really rests on their shoulders, more than on its currency management. But it cannot last: China’s single-child policy means that by 2015 the size of its working-age population will peak.
More important than the blame game, perhaps, is what China’s growth can teach the rest of the world. As Justin Lin argues, ‘If you look at the experiences of all the successful countries in economic development – postwar Japan, Korea and Taiwan, the transition nations of China and Vietnam, or even the early development of the UK, German, US and French economies – all have relied on the market mechanism combined with active interventions of government.’

Immigrants were 45% of the labour force despite
being 36% of population in 2009.29 The city has a bipolar job market,
where jobs are concentrated at the high end in finance and business
and the low end in the service sector.30 Ethno-racial minorities, particularly immigrants, are represented at all levels, but they are clustered in
the shrinking middle. US-born non-Hispanic Whites and Blacks have
declining working-age populations, and the looming labour shortfall is
being filled by immigrants.
Ethnic economies in New York are relatively small and shifting. The
Chinese economy is the largest and most enduring. I will discuss it in
detail later. Ethnic/immigrant economic niches are more common, but
Ethnicity and the Urban Economy
103
they also shift over time. About half of all immigrants work in whitecollar jobs, as do 75% of the native-born, including ethno-racial minorities.

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An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy
by
Marc Levinson

While Giscard described himself as a conservative who liked change, he was wildly enthusiastic about the state’s role in building France’s first high-speed rail line, a fleet of nuclear power plants to reduce dependence, and Minitel, a video-text terminal that was installed in millions of French homes. Such projects reinforced France’s prestige as a leader in advanced technology, but they did almost nothing to boost employment: France’s working-age population grew nearly 1 percent per year between 1974 and 1981, but the number of people with jobs rose hardly at all. With 1.75 million workers unemployed by 1981, the president’s promise of a job or a training slot for every young French worker rang hollow.3
Giscard’s ineffectual performance opened the door for Mitterrand. During the 1970s, Mitterrand had slowly drifted to the left as he steered the Socialists into a loose alliance with the Communist Party.

Growth of output per worker,
in turn, depends on a) accumulation of physical capital per worker, b) increase
in human capital per worker, and c) improvements in TFP per worker. (An
important qualification is that the equivalence between growth of output per
head and growth of output per worker does not quite hold in India because
the country is due to receive a ‘demographic bonus’: the working-​age population is expected to increase faster than the population as a whole for the next
three decades. While this ‘bonus’ lasts, output per head will grow somewhat
faster than output per worker.3 So long as this is kept in mind, growth of output per worker can serve as a proxy for growth of output per head.)
Physical Capital
Capital accumulation depends on how much the nation is willing to save
and invest out of current output.

Most of this chapter has focused on the challenges India faces in the coming years if it is to continue to ascend the international rankings. They are Herculean. But equally, its advantages are colossal. India never lacks for scale. In spite of the pressures of population density, India’s clearest advantage over China and other developing countries is its demographic profile. From 2010, China’s dependency ratio—the proportion of the working-age population to the rest—will start to deteriorate. In contrast, India’s dependency ratio will continue to improve until the 2040s.34 In the next twenty years, the proportion of dependents to workers will fall from 60 percent of the population to 50 percent. This will give India’s economy a large “demographic dividend.” It is commonplace to say a nation’s future lies in its youth. But India’s future also lies in its youthfulness.

WHITE PRISONERS
Sources: IPUMS and the six federal inmate surveys (appendix A).
*The numerator is based on white male state and federal prisoners of all ages. The denominator is based on whites ages 18–65.
Interpreting the Ratios
There is no natural denominator for computing ratios of crime indicators to population. I use whites ages 18–65 as a way to think about the numbers relative to the working-age population.
In contrast, the environment in Belmont changed hardly at all. The parallel numbers for Belmont were 13 in the 1974 survey and 27 in the 2004 survey. It is statistically unlikely that someone living in Belmont knew of a family with one of its men in prison even in 2004. Someone living in Fishtown was likely to know of at least one such family, and perhaps several.
Neighbors on Probation and Parole
While imprisonment is likely to be a misfortune for the prisoners’ families, at least it has one positive effect on neighborhood life: It locks up people who otherwise would still be making trouble.

A recent study emphasizes the demographic influences on housing markets. Using panel data from 22 advanced countries between 1970 and 2009, Takats (2010) estimates that both real GDP-per-capita growth and total population growth boost real house prices one for one (a 1% increase in either series raises real house prices by 1%), while aging has a negative impact (a 1% increase in the dependency ratio—the ratio between the old age population and the working age population—reduces real house prices by 0.7%). These factors are not the only drivers of house prices but they partly explain the lagging performance of Japan and Germany. More generally, the study argues that multi-decade tailwinds on housing and other asset prices are now turning into multi-decade headwinds.
I have little to say about the active management of real estate investments, or skills needed for it, partly due to my lack of expertise.

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The Great Leveler: Violence and the History of Inequality From the Stone Age to the Twenty-First Century
by
Walter Scheidel

Bergh and Henrekson 2011 survey the literature on the relationship between government share of GDP and economic growth in high-income countries. Social spending trends: OECD 2014: 2 fig. 2. For the main components, see 4 fig. 4.
3 European Commission 2007, 2013, and 2015 are key reports on the scale and consequences of aging in Europe. Cf. also briefly United Nations 2015 for global trends. Fertility rates: European Commission 2007: 12 (about 1.5 now, projected to rise to about 1.6 by 2050). Median age and working age population: 13. Dependency ratios: 13 (rise to 53 percent by 2050); European Commission 2013 (rise to 51 percent by 2050) and 2015: 1 (rise to 50.1 percent by 2060). Eighty-year-olds and older: European Commission 2007: 13. Cf. 46 fig. 2.7., 49 fig. 2.9, and Hossmann et al. 2008: 8 on the range of future age pyramids. Growth as share of GDP: 13, with 70 table 3.3 (health care), 72 table 3.4 (long-term care); but contrast European Commission 2015: 4, for an additional 1.8 percent of GDP in spending required by 2060, albeit with great differences among countries (4–5).